Conceptual Framework for Financial Reporting

Definition of equity
Equity is the residual interest in the assets of the entity after deducting all its
liabilities.
Equity claims are claims on the residual interest in the assets of the entity
after deducting all its liabilities. In other words, they are claims against the
entity that do not meet the definition of a liability. Such claims may be
established by contract, legislation or similar means, and include, to the
extent that they do not meet the definition of a liability:
(a)
shares of various types, issued by the entity; and
(b)
some obligations of the entity to issue another equity claim.
Different classes of equity claims, such as ordinary shares and preference
shares, may confer on their holders different rights, for example, rights to
receive some or all of the following from the entity:
(a)
dividends, if the entity decides to pay dividends to eligible holders;
(b)
the proceeds from satisfying the equity claims, either in full on
liquidation, or in part at other times; or
(c)
other equity claims.
Sometimes, legal, regulatory or other requirements affect particular
components of equity, such as share capital or retained earnings. For example,
some such requirements permit an entity to make distributions to holders of
equity claims only if the entity has sufficient reserves that those requirements
specify as being distributable.
Business activities are often undertaken by entities such as sole
proprietorships, partnerships, trusts or various types of government business
undertakings. The legal and regulatory frameworks for such entities are often
different from frameworks that apply to corporate entities. For example, there
may be few, if any, restrictions on the distribution to holders of equity claims
against such entities. Nevertheless, the definition of equity in paragraph 4.63
of the Conceptual Framework applies to all reporting entities.
4.62
4.63
4.64
4.65
4.66
4.67
Conceptual Framework
© IFRS Foundation
A49

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